<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.__)
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[X] Definitive Proxy Statement RULE 14A-6(E)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
PROPHET 21, INC.
----------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--Enter Company Name Here--
----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(l), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
[LOGO OF PROPHET 21 SYSTEM APPEARS HERE]
PROPHET 21, INC.
19 WEST COLLEGE AVENUE
YARDLEY, PENNSYLVANIA 19067
To Our Stockholders:
You are most cordially invited to attend the 1996 Annual Meeting of
Stockholders of Prophet 21, Inc. at 1:00 P.M., local time, on Thursday,
October 24, 1996, at the offices of the Company, 19 West College Avenue,
Yardley, Pennsylvania.
The Notice of Meeting and Proxy Statement on the following pages describe
the matters to be presented to the meeting.
It is important that your shares be represented at this meeting to assure
the presence of a quorum. Whether or not you plan to attend the meeting, we
hope that you will have your stock represented by signing, dating and
returning your proxy in the enclosed envelope, which requires no postage if
mailed in the United States, as soon as possible. Your stock will be voted in
accordance with the instructions you have given in your proxy.
Thank you for your continued support.
Sincerely,
/s/ John E. Meggitt, Ph.D.
John E. Meggitt, Ph.D.
Chairman of the Board
<PAGE>
PROPHET 21, INC.
19 WEST COLLEGE AVENUE
YARDLEY, PENNSYLVANIA 19067
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 24, 1996
----------------
The Annual Meeting of Stockholders (the "Meeting") of PROPHET 21, INC., a
Delaware corporation (the "Company"), will be held at the offices of the
Company, 19 West College Avenue, Yardley, Pennsylvania, on Thursday, October
24, 1996, at 1:00 P.M., local time, for the following purposes:
(1)To elect five directors to serve until the next Annual Meeting of
Stockholders and until their respective successors shall have been duly
elected and qualified;
(2)To ratify the appointment of Coopers & Lybrand L.L.P. as independent
auditors for the year ending June 30, 1997; and
(3)To transact such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
Holders of Common Stock of record at the close of business on September 4,
1996 are entitled to notice of and to vote at the Meeting, or any adjournment
or adjournments thereof. A complete list of such stockholders will be open to
the examination of any stockholder at the Company's principal executive
offices at 19 West College Avenue, Yardley, Pennsylvania 19067 for a period of
10 days prior to the Meeting. The Meeting may be adjourned from time to time
without notice other than by announcement at the Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER OF
SHARES YOU MAY HOLD. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED RETURN ENVELOPE. THE PROMPT RETURN OF PROXIES WILL ENSURE A
QUORUM AND SAVE THE COMPANY THE EXPENSE OF FURTHER SOLICITATION. EACH PROXY
GRANTED MAY BE REVOKED BY THE STOCKHOLDER APPOINTING SUCH PROXY AT ANY TIME
BEFORE IT IS VOTED. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOUR
SHARES ARE REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH SUCH PROXY CARD
SHOULD BE SIGNED AND RETURNED TO ASSURE THAT ALL OF YOUR SHARES WILL BE VOTED.
By Order of the Board of Directors
/s/ Dorothy M. Meggitt
Dorothy M. Meggitt
Secretary
Yardley, Pennsylvania
September 25, 1996
THE COMPANY'S 1996 ANNUAL REPORT ACCOMPANIES THE PROXY STATEMENT.
<PAGE>
PROPHET 21, INC.
19 WEST COLLEGE AVENUE
YARDLEY, PA 19067
----------------
PROXY STATEMENT
----------------
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Prophet 21, Inc. (the "Company") of proxies to be voted
at the Annual Meeting of Stockholders of the Company to be held on October 24,
1996 (the "Meeting") at the offices of the Company, 19 West College Avenue,
Yardley, Pennsylvania at 1:00 P.M., local time, and at any adjournment or
adjournments thereof. Holders of record of Common Stock, $.01 par value
("Common Stock"), as of the close of business on September 4, 1996, will be
entitled to notice of and to vote at the Meeting and any adjournment or
adjournments thereof. As of that date, there were 3,992,500 shares of Common
Stock issued and outstanding and entitled to vote. Each share of Common Stock
is entitled to one vote on any matter presented at the Meeting.
If proxies in the accompanying form are properly executed and returned, the
Common Stock represented thereby will be voted in the manner specified
therein. If not otherwise specified, the Common Stock represented by the
proxies will be voted (i) FOR the election of the five nominees named below as
Directors, (ii) FOR the ratification of the appointment of Coopers & Lybrand
L.L.P. as independent auditors for the year ending June 30, 1997, and (iii) in
the discretion of the persons named in the enclosed form of proxy, on any
other proposals which may properly come before the Meeting or any adjournment
or adjournments thereof. Any Stockholder who has submitted a proxy may revoke
it at any time before it is voted, by written notice addressed to and received
by the Secretary of the Company, by submitting a duly executed proxy bearing a
later date or by electing to vote in person at the Meeting. The mere presence
at the Meeting of the person appointing a proxy does not, however, revoke the
appointment.
The presence, in person or by proxy, of holders of Common Stock having a
majority of the votes entitled to be cast at the Meeting shall constitute a
quorum. The affirmative vote of holders of a plurality of the shares of Common
Stock represented at the Meeting is required for the election of Directors,
provided a quorum is present in person or by proxy. All actions proposed
herein other than the election of Directors may be taken upon the affirmative
vote of Stockholders possessing a majority of the voting power represented at
the Meeting, provided a quorum is present in person or by proxy. Abstentions
are included in the shares present at the Meeting for purposes of determining
whether a quorum is present, and are counted as a vote against for purposes of
determining whether a proposal is approved. Broker non-votes (when shares are
represented at the Meeting by a proxy specifically conferring only limited
authority to vote on certain matters and no authority to vote on other
matters) are included in the determination of the number of shares represented
at the Meeting for purposes of determining whether a quorum is present but are
not counted for purposes of determining whether a proposal has been approved
and thus have no effect on the outcome.
This Proxy Statement, together with the related proxy card, is being mailed
to the Stockholders of the Company on or about September 25, 1996. The Annual
Report to Stockholders of the Company for the year ended June 30, 1996,
including financial statements (the "Annual Report"), is being mailed together
with this Proxy Statement to all Stockholders of record as of September 4,
1996. In addition, the Company has provided brokers, dealers, banks, voting
trustees and their nominees, at the Company's expense, with additional copies
of the Annual Report so that such record holders could supply such material to
beneficial owners as of September 4, 1996.
ELECTION OF DIRECTORS
At the Meeting, five Directors are to be elected (which number shall
constitute the entire Board of Directors of the Company) to hold office until
the next Annual Meeting of Stockholders and until their successors shall have
been elected and qualified.
<PAGE>
It is the intention of the persons named in the enclosed form of proxy to
vote the stock represented thereby, unless otherwise specified in the proxy,
for the election as Directors of the persons whose names and biographies
appear below. All of the persons whose names and biographies appear below are
at present Directors of the Company. In the event any of the nominees should
become unavailable or unable to serve as a Director, it is intended that votes
will be cast for a substitute nominee designated by the Board of Directors.
The Board of Directors has no reason to believe that the nominees named will
be unable to serve if elected. Each of the nominees has consented to being
named in this Proxy Statement and to serve if elected.
The current Board of Directors and nominees for election to the Board are as
follows:
<TABLE>
<CAPTION>
SERVED AS A POSITIONS WITH
NAME AGE DIRECTOR SINCE THE COMPANY
---- --- -------------- ---------------
<S> <C> <C> <C>
John E. Meggitt, Ph.D. . 65 1967 Chairman of the Board and Director
Charles L. Boyle, III... 43 1993 President, Chief Executive Officer and Director
Dorothy M. Meggitt...... 62 1967 Secretary and Director
Louis J. Cissone........ 61 1994 Director
Mark A. Timmerman....... 35 1994 Director
</TABLE>
Other than Dr. John E. Meggitt and Dorothy M. Meggitt, who are husband and
wife, there are no family relationships among any of the Directors, executive
officers and key employees of the Company.
The principal occupations and business experience, for at least the past
five years, of each Director and nominee is as follows:
Dr. Meggitt founded the Company and has served as a Director of the Company
since its inception in 1967. From the Company's inception through August 13,
1996, he was also President and Chief Executive Officer of the Company. In
addition, Dr. Meggitt served as Treasurer of the Company from its inception
through December 1993. Prior to founding the Company, he directed system
programming operations for Electronic Associates, Inc. and, earlier, conducted
computer research for IBM.
Mr. Boyle joined the Company in 1984 and, effective August 13, 1996, was
elected to the offices of President and Chief Executive Officer. Prior to
serving in his current capacities, Mr. Boyle served as Executive Vice
President from September 1992 to August 1996, Chief Financial Officer from
September 1992 to December 1995, Chief Operating Officer from December 1995 to
August 1996 and Treasurer from December 1993 to August 1996. He has been a
Director since December 1993. Prior to joining the Company, Mr. Boyle held
various financial and management positions with Colt Industries, Inc.
Mrs. Meggitt joined the Company upon its inception in 1967 and has served as
Secretary and a Director since that time. Mrs. Meggitt managed the Company's
human resources and facilities departments from 1967 through 1987.
Mr. Cissone has been on the Board of Directors since May 1994. From 1986
until his retirement in December 1995, Mr. Cissone served as Senior Vice
President and Chief Financial Officer of Sun Distributors L.P., a wholesale
distributor of industrial products. In addition, Mr. Cissone has served on the
Board of Directors of Robec, Inc., a national value-added distributor of
micro-computer systems, since 1991.
Mr. Timmerman has been on the Board of Directors since May 1994. Since 1986,
Mr. Timmerman has worked for and currently is a partner in the Chicago-based
investment banking firm of William Blair & Company which managed the Company's
initial public offering of Common Stock in March 1994. In addition, Mr.
Timmerman has served on the Board of Directors of DIY Home Warehouse, a
retailer of home products, since 1993.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE
NOMINEES FOR THE BOARD OF DIRECTORS.
2
<PAGE>
COMMITTEES AND MEETINGS OF THE BOARD
The Board of Directors has a Compensation Committee, which approves salaries
and certain incentive compensation for top level employees of and consultants
to the Company; an Audit Committee, which reviews the results and scope of the
audit and other services provided by the Company's independent auditors; and
an Option Committee, which makes recommendations about stock option awards to
employees of and consultants to the Company. Each of the Compensation and
Audit Committee currently consists of John E. Meggitt, Ph.D., Mark A.
Timmerman and Louis J. Cissone. The Option Committee consists of Messrs.
Timmerman and Cissone. Each committee had one meeting during fiscal 1996.
There were four meetings of the Board of Directors in fiscal 1996. During
fiscal 1996, each incumbent Director attended all meetings of the Board of
Directors and all meetings of Committees on which he or she served.
COMPENSATION OF DIRECTORS
Non-employee Directors receive an annual fee of $5,000 for services on the
Board of Directors or any committee thereof plus $500 and reimbursement of
their expenses for each meeting attended. The Company may from time to time,
and at the discretion of the Board of Directors, grant stock options to
Directors for their service on the Board of Directors. To date, no such stock
options have been granted.
EXECUTIVE OFFICERS
The following table identifies the current executive officers of the
Company:
<TABLE>
<CAPTION>
CAPACITIES IN IN CURRENT
NAME AGE WHICH SERVED POSITION SINCE
---- --- ------------- --------------
<S> <C> <C> <C>
John E. Meggitt, Ph.D. ......... 65 Chairman of the Board and Director 1967
Charles L. Boyle, III........... 43 President, Chief Executive Officer and Director 1996
Thomas M. Giuliani, CPA(1)...... 39 Chief Financial Officer and Treasurer 1996
Dorothy M. Meggitt.............. 62 Secretary and Director 1967
Neil Jaffe(2)................... 51 Vice President--Software Development 1992
</TABLE>
- - --------
(1) Mr. Giuliani joined the Company in 1989 and currently serves as its
Chief Financial Officer and Treasurer. Prior to joining the Company, Mr.
Giuliani held various accounting and financial positions for Deloitte & Touche
(previously Deloitte Haskins and Sells), Commodore International Ltd., Fox
Chase Cancer Center and Robinson Alarm Company.
(2) Mr. Jaffe joined the Company in 1969 and currently serves as its Vice
President--Software Development. Prior to joining the Company, Mr. Jaffe was a
programmer for Worthington Biochemical Corporation.
Other than Dr. John E. Meggitt and Dorothy M. Meggitt, who are husband and
wife, there are no family relationships among any of the Directors, executive
officers and key employees of the Company. Executive officers of the Company
are elected annually by the Board of Directors and serve until their
successors are duly elected and qualified.
3
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION IN FISCAL 1996, 1995 AND 1994
The following Summary Compensation Table sets forth information concerning
compensation for services in all capacities awarded to, earned by or paid to
(i) the Company's Chief Executive Officer for fiscal 1996, (ii) the two most
highly compensated executive officers of the Company whose aggregate cash
compensation exceeded $100,000 and who were serving as executive officers at
the end of fiscal 1996, including the Company's current Chief Executive
Officer, and (iii) one additional individual who would have fallen into
category (ii) but for the fact that the individual was not serving as an
executive officer at the end of fiscal 1996 (collectively, the "Named
Executives") during the years ended June 30, 1994, 1995 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
- - ----------------------------------------------------------------------------
<CAPTION>
LONG-TERM
COMPENSATION
------------------
ANNUAL
COMPENSATION AWARDS
- - ----------------------------------------------------------------------------
(A) (B) (C) (D) (G) (I)
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS OPTIONS COMPENSATION
POSITION YEAR ($) ($) (#) ($)(1)
- - ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
John E. Meggitt, Ph.D., 1996 $ 75,000 -- -- $ 7,616
Chairman of the Board(2) 1995 $139,423 -- -- $ 9,586
1994 $220,000 $51,440 -- $ 15,039
Charles L. Boyle, III, 1996 $180,000 -- 50,000 $ 2,451
President and Chief 1995 $189,230 $17,541 -- $ 4,003
Executive Officer(3) 1994 $200,000 $64,966 110,000 $ 15,608
Neil Jaffe, 1996 $150,000 -- -- $ 6,957
Vice President--Software 1995 $173,076 $17,541 -- $ 8,064
Development 1994 $200,000 $73,418 80,000 $ 15,937
Richard Hercus, 1996 $123,500 -- -- $192,089
Vice President--Customer 1995 $153,076 $17,924 -- $ 3,102
Services(4) 1994 $180,000 $62,323 80,000 $ 15,929
</TABLE>
(1) Includes Company contributions to its 401(k) plan, profit sharing plan
(which was replaced by the 401(k) plan in October 1993) and supplemental life
insurance and long-term disability premiums paid by the Company on behalf of
its executive officers. The Company made no 401(k) contributions on behalf of
its executive officers during fiscal 1996.
(2) During fiscal 1996, Dr. Meggitt served as President and Chief Executive
Officer of the Company.
(3) During fiscal 1996, Mr. Boyle served as Executive Vice President, Chief
Operating Officer and Treasurer of the Company. Mr. Boyle was elected
President and Chief Executive Officer of the Company on August 13, 1996.
(4) Richard Hercus resigned his position as Vice President--Customer
Services of the Company effective June 8, 1996. In connection therewith, Mr.
Hercus and the Company entered into a separation agreement dated June 8, 1996.
The amount set forth under All Other Compensation for fiscal 1996 includes
$190,000 paid to Mr. Hercus under such separation agreement. See "Employment
Contracts and Termination of Employment."
4
<PAGE>
OPTION GRANTS IN FISCAL 1996
The following table sets forth information concerning individual grants of
stock options made pursuant to the Company's 1993 Stock Plan during fiscal
1996 to each of the Named Executives. The Company has never granted any stock
appreciation rights.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
OPTION TERM(2)
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED EXERCISE OR
GRANTED TO EMPLOYEES BASE PRICE EXPIRATION
NAME (#)(1) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
(A) (B) (C) (D) (E) (F) (G)
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John E. Meggitt, Ph.D. -- -- -- -- -- --
Charles L. Boyle, III 50,000 27.8% $4.50 5/6/06 $ 141,500 $ 358,500
Neil Jaffe -- -- -- -- -- --
Richard Hercus -- -- -- -- -- --
- - ----------------------------------------------------------------------------------------------------
</TABLE>
(1) The options disclosed herein were granted as non-qualified stock options
and become exercisable to the extent of one-third of the options on the first
anniversary from the date of grant (May 7, 1996) with an additional one-third
of the options granted becoming exercisable on each of the second and third
anniversary of the date of grant. The options terminate on the expiration
date, subject to earlier termination on the optionee's death, disability or
termination of employment with the Company. Options are not assignable or
otherwise transferable except by will or the laws of descent and distribution.
(2) Based on a grant date fair market value of $4.50 for the grant to Mr.
Boyle.
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning each exercise of
options during fiscal 1996 by each of the Named Executives and the year end
value of unexercised in-the-money options.
- - -------------------------------------------------------------------------------
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND YEAR END OPTION VALUES
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT FISCAL
FISCAL YEAR-END YEAR-END
(#) ($)(1)
SHARES
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED($) UNEXERCISABLE UNEXERCISABLE
(A) (#)(B) (C) (D) (E)
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John E. Meggitt, Ph.D. -- -- -- --
Charles L. Boyle, III -- -- 110,000/50,000 $0/87,500
Neil Jaffe -- -- 80,000/0 $ 0/0
Richard Hercus -- -- 0/80,000(2) $ 0/0
- - ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on a closing price of $6.25 per share of Common Stock as listed on
the Nasdaq National Market at June 30, 1996.
(2) According to the terms of the separation agreement with Mr. Hercus dated
June 8, 1996, all 80,000 options granted to Mr. Hercus become exercisable six
months after his employment with the Company is terminated.
5
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
Each of Dr. Meggitt and Messrs. Boyle and Jaffe entered into five-year
employment agreements with the Company commencing July 1, 1993. In January
1995, each of Dr. Meggitt and Messrs. Boyle and Jaffe voluntarily agreed to
amend such employment agreements to reflect significant reductions in their
respective base salaries. Under such agreements as amended to date, Dr.
Meggitt is entitled to an annual salary of $75,000; Mr. Boyle is entitled to
an annual salary of $180,000; and Mr. Jaffe is entitled to an annual salary of
$150,000. The amendments to such employment agreements deleted the formula-
based bonus provisions included within such agreements. Bonuses are now
payable to the executive officers at the discretion of the Compensation
Committee of the Board of Directors of the Company. No bonuses were paid to
the Company's executive officers based upon fiscal 1996 results of operations.
In addition to the provision in the above-described employment agreements
requiring each of Dr. Meggitt and Messrs. Boyle and Jaffe to maintain the
confidentiality of Company information and assign inventions to the Company,
each of such executive officers has agreed that during the term of his
respective agreement and thereafter for the greater of two years or the period
of time for which such executive officer is being compensated under such
agreement, such person will not compete with the Company by engaging in any
capacity in any business which is competitive with the business of the
Company.
The Company has executed indemnification agreements with each of its
executive officers and Directors pursuant to which the Company has agreed to
indemnify such parties to the full extent permitted by law, subject to certain
exceptions, if such party becomes subject to an action because such party is a
Director, officer, employee, agent or fiduciary of the Company.
On June 8, 1996, the Company accepted the resignation of Richard Hercus,
Vice President--Customer Services. Mr. Hercus and the Company reached an
agreement on June 8, 1996 and in accordance with such agreement, the Company
paid Mr. Hercus $190,000. All 80,000 options to purchase Common Stock
previously granted to Mr. Hercus become exercisable six (6) months after his
employment with the Company is terminated. Such options expire on December 14,
2003 in accordance with their original terms.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of John E. Meggitt, Ph.D., Mark A.
Timmerman and Louis J. Cissone.
The Company's headquarters in Yardley, Pennsylvania are leased to the
Company by John E. Meggitt, Ph.D., the Chairman of the Board, and Dorothy M.
Meggitt, his wife and Secretary of the Company. Dr. and Mrs. Meggitt also are
Directors and majority stockholders of the Company. See "Security Ownership of
Certain Beneficial Owners and Management." On July 1, 1993, the Company and
Dr. and Mrs. Meggitt entered into a five-year lease for the Yardley
facilities. Under such lease arrangement, the Company made rental payments to
Dr. and Mrs. Meggitt totaling $438,000 during the year ended June 30, 1996. In
addition, the Company paid $49,167 during the year ended June 30, 1996 for
property taxes due on such property. The Company believes that the terms of
the lease are at least as favorable to the Company as the terms that may have
been available from unrelated third parties. In addition, the Company has
determined that any future transactions between the Company and its officers,
Directors, principal stockholders and their affiliates shall be on terms no
less favorable to the Company than could be obtained from unrelated third
parties.
In fiscal 1996, the Company paid $77,564 of salary to Peter Meggitt, the son
of Dr. and Mrs. Meggitt. Mr. Meggitt serves as a systems programmer for the
Company.
6
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Company's Common Stock with the cumulative total return on the Nasdaq
Composite Index and the S&P Computer Systems Index (capitalization weighted)
for the period beginning on the date on which the SEC declared effective the
Company's Form 8-A Registration Statement pursuant to Section 12 of the
Exchange Act and ending on the last day of the Company's last completed fiscal
year.
[INSERT GRAPH]
COMPARISON OF CUMULATIVE TOTAL RETURN (1)(2)(3)
Among the Company, the Nasdaq Composite Index and the S&P Computer Systems Index
<TABLE>
<CAPTION>
03/11/94 06/30/94 06/30/95 06/30/96
<S> <C> <C> <C> <C>
Prophet 21, Inc. $100.00 $95.00 $45.00 $62.50
Nasdaq Composite Index $100.00 $89.45 $118.28 $150.15
S&P Computer Systems Index $100.00 $92.85 $152.62 $170.18
</TABLE>
(1) Graph assumes $100.00 invested on March 11, 1994 in the Company's Common
Stock, the Nasdaq Composite Index and the S&P Computer Systems Index.
(2) Total return assumes reinvestment of dividends.
(3) Fiscal year ending June 30.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has furnished the following report:
The Company's executive compensation policy is designed to attract and
retain highly qualified individuals for its executive positions and to provide
incentives for such executives to achieve maximum Company performance by
aligning the executives' interest with that of stockholders by basing a
portion of compensation on corporate performance.
7
<PAGE>
The Compensation Committee generally determines base salary levels for
executive officers of the Company, who are not subject to an employment
agreement, at or about the start of the fiscal year and determines actual
bonuses after the end of the fiscal year based upon Company and individual
performance. Each of the Named Executives executed five-year employment
agreements on July 1, 1993 which established the salaries and bonuses to be
paid to each of the Named Executives. Each of the Named Executives voluntarily
agreed in January 1995 to amend their agreements to reflect significant
reductions in their base salary.
The Company's executive officer compensation program is comprised of base
salary, conditional cash bonuses, stock options granted at the discretion of
the Option Committee and various other benefits, including medical insurance
and a 401(k) Plan which are generally available to all employees of the
Company.
Salaries, whether established pursuant to contract or otherwise, are
established in accordance with industry standards through review of publicly
available information concerning the compensation of officers of comparable
companies. Consideration is also given to relative responsibility, seniority,
individual experience and performance. Salaries for the Named Executives are
fixed in accordance with the employment agreements. Salary increases for other
executives are generally made based on increases in the industry for similar
companies with similar performance profiles and/or attainment of certain
division or Company goals.
The stock option program is designed to relate executives' long-term
interests to stockholders' long-term interests. Stock options will be awarded
on the basis of individual performance and/or the achievement of internal
strategic objectives.
Based on review of available information, the Committee believes that the
Chief Executive Officer's total annual compensation is reasonable and
appropriate given the size, complexity and historical performance of the
Company's business, the Company's position as compared to its peers in the
industry, and the specific challenges faced by the Company during the year,
such as changes in the market for computer products and manufacturers' product
lines, as well as variations in prices and distribution channels, and other
industry factors. No specific weight was assigned to any of the criteria
relative to the Chief Executive Officer's compensation.
Compensation Committee Members
John E. Meggitt, Ph.D.
Louis J. Cissone
Mark A. Timmerman
8
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There are, as of September 4, 1996, approximately 182 holders of record and
925 beneficial holders of the Company's Common Stock. The following table sets
forth certain information, as of September 4, 1996, regarding the beneficial
ownership of the Company's Common Stock by (i) each person who is known to the
Company to own beneficially more than 5% of the total number of shares of
Common Stock outstanding as of such date, (ii) each of the Company's current
Directors (which includes all nominees) and Named Executives, and (iii) all
Directors and officers as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER(1) OF BENEFICIAL OWNERSHIP(1) OF CLASS(2)
---------------------- -------------------------- -----------
<S> <C> <C>
(I)CERTAIN BENEFICIAL OWNERS:
Kalmar Investments, Inc. ......... 266,475 6.7
1300 Market Street
Suite 500
Wilmington, DE 19801
LGT Asset Management, Inc. ....... 327,600 8.2
50 California Street, 27th Floor
San Francisco, CA 94111-4624
(II) DIRECTORS (WHICH INCLUDES ALL
NOMINEES) AND NAMED
EXECUTIVES:
John E. Meggitt, Ph.D. and
Dorothy M. Meggitt............... 2,278,332(3) 57.1
19 West College Avenue
Yardley, PA 19067
Charles L. Boyle, III............. 116,000(4) 2.8
Neil Jaffe........................ 218,364(5) 5.4
Richard Hercus.................... 0(6) *
Louis J. Cissone.................. 500 *
Mark A. Timmerman................. 2,000 *
(III) ALL CURRENT DIRECTORS AND
OFFICERS
AS A GROUP (7 PERSONS)...... 2,621,496(3)(4)(5)(6)(7) 62.6
</TABLE>
- - --------
* Less than one percent.
(1) Except as set forth in the footnotes to this table and subject to
applicable community property law, the persons named in the table have sole
voting and investment power with respect to all shares.
(2) Applicable percentage of ownership is based on 3,992,500 shares of
Common Stock outstanding on September 4, 1996.
(3) John E. Meggitt, Ph.D., Chairman of the Board, and Dorothy M. Meggitt,
Secretary, are husband and wife. Includes 1,837,348 shares of Common Stock
held by Dr. Meggitt and 440,984 shares of Common Stock held by Mrs. Meggitt.
Does not include an aggregate of 48,940 shares of Common Stock owned of record
by Dr. and Mrs. Meggitt's adult children, as to which shares Dr. and Mrs.
Meggitt disclaim beneficial ownership.
(4) Includes 110,000 shares of Common Stock subject to options which were
exercisable as of September 4, 1996 or which will become exercisable within 60
days after such date.
(5) Includes an aggregate of 2,000 shares of Common Stock owned of record by
Mr. Jaffe as custodian for his minor children and 80,000 shares of Common
Stock subject to options which were exercisable as of September 4, 1996 or
which will become exercisable within 60 days after such date.
(6) Does not include 80,000 shares of Common Stock subject to options which
become exercisable on December 8, 1996 pursuant to the terms of a separation
agreement. See "Executive Compensation--Employment Contracts and Termination
of Employment."
(7) Includes 300 shares of Common Stock owned of record by an officer of the
Company not individually listed and 6,000 shares of Common Stock subject to
options held by such officer which were exercisable as of September 4, 1996 or
which will become exercisable within 60 days after such date.
9
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has executed indemnification agreements with each of its
Directors and executive officers pursuant to which the Company has agreed to
indemnify such parties to the full extent permitted by law, subject to certain
exceptions, if such party becomes subject to an action because such party is a
Director, officer, employee, agent or fiduciary of the Company.
Transactions involving Dr. and Mrs. Meggitt are reported in "Executive
Compensation--Compensation Committee Interlocks and Insider Participation."
Transactions involving Mr. Hercus, a former executive officer of the Company
who resigned on June 8, 1996 are reported in "Executive Compensation--
Employment Contracts and Termination of Employment."
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company has, subject to Stockholder approval,
retained Coopers & Lybrand L.L.P. as independent auditors of the Company for
the year ending June 30, 1997. Coopers & Lybrand L.L.P. also served as
independent auditors of the Company for fiscal 1996. Neither the firm nor any
of its members has any direct or indirect financial interest in or any
connection with the Company in any capacity other than as independent
auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS THE INDEPENDENT AUDITORS OF THE
COMPANY FOR THE FISCAL YEAR ENDING JUNE 30, 1997.
One or more representatives of Coopers & Lybrand L.L.P. is expected to
attend the Meeting and have an opportunity to make a statement and/or respond
to appropriate questions from Stockholders.
STOCKHOLDERS' PROPOSALS
Stockholders who wish to submit proposals for inclusion in the Company's
proxy statement and form of proxy relating to the 1997 Annual Meeting of
Stockholders must advise the Secretary of the Company of such proposals in
writing by May 29, 1997.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for action
at the Meeting other than the matters referred to above and does not intend to
bring any other matters before the Meeting. However, if other matters should
come before the Meeting, it is intended that holders of the proxies will vote
thereon in their discretion.
GENERAL
The accompanying proxy is solicited by and on behalf of the Board of
Directors of the Company, whose notice of meeting is attached to this Proxy
Statement, and the entire cost of such solicitation will be borne by the
Company.
In addition to the use of the mails, proxies may be solicited by personal
interview, telephone and telegram by Directors, executive officers and other
employees of the Company who will not be specially compensated for these
services. The Company will also request that brokers, nominees, custodians and
other fiduciaries forward soliciting materials to the beneficial owners of
shares held of record by such brokers, nominees, custodians and other
fiduciaries. The Company will reimburse such persons for their reasonable
expenses in connection therewith.
10
<PAGE>
Certain information contained in this Proxy Statement relating to the
occupations and security holdings of Directors and executive officers of the
Company is based upon information received from the individual Directors and
officers.
PROPHET 21, INC. WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS REPORT ON FORM
10-K FOR THE YEAR ENDED JUNE 30, 1996, INCLUDING FINANCIAL STATEMENTS AND
SCHEDULES THERETO BUT NOT INCLUDING EXHIBITS, TO EACH OF ITS STOCKHOLDERS OF
RECORD ON SEPTEMBER 4, 1996, AND TO EACH BENEFICIAL STOCKHOLDER ON THAT DATE
UPON WRITTEN REQUEST MADE TO THE SECRETARY OF THE COMPANY. A REASONABLE FEE
WILL BE CHARGED FOR COPIES OF REQUESTED EXHIBITS.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE IN
THE ENCLOSED RETURN ENVELOPE. A PROMPT RETURN OF YOUR PROXY CARD WILL BE
APPRECIATED AS IT WILL SAVE THE EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors
/s/ Dorothy M. Meggitt
Dorothy M. Meggitt
Secretary
Yardley, Pennsylvania
September 25, 1996
11
<PAGE>
PROPHET 21, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby constitutes and appoints John E. Meggitt, Ph.D. and
Charles L. Boyle, III, and each of them, his or her true and lawful agent and
proxy with full power of substitution in each, to represent and to vote on
behalf of the undersigned all of the shares of Prophet 21, Inc. (the "Company")
which the undersigned is entitled to vote at the Annual Meeting of Stockholders
of the Company to be held at the Company's offices, 19 West College Avenue,
Yardley, Pennsylvania 19067 at 1:00 P.M., local time, on Thursday, October 24,
1996 and at any adjournment or adjournments thereof, upon the following
proposals more fully described in the Notice of Annual Meeting of Stockholders
and Proxy Statement for the Meeting (receipt of which is hereby acknowledged).
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
[X] PLEASE MARK YOUR
VOTES AS IN THIS EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2.
1. Election of Directors VOTE FOR all VOTE WITHHELD
nominees from all nominees
For, except vote [_] [_]
withheld from the
following nominees
(if any):
NOMINEES: John E. Meggitt, Ph.D., Charles L. Boyle, III, Dorothy M. Meggitt,
Louis J. Cissone and Mark A. Timmerman.
FOR AGAINST ABSTAIN
2. APPROVAL OF PROPOSAL TO RATIFY
THE APPOINTMENT OF COOPERS & [_] [_] [_]
LYBRAND L.L.P. AS THE INDEPENDENT
AUDITORS OF THE COMPANY FOR THE
YEAR ENDING JUNE 30, 1997.
3. In his discretion, the proxy is
authorized to vote upon other
matters as may properly come before
the Meeting.
I WILL [_]
I WILL NOT [_]
ATTEND THE MEETING.
- - ---------------------------------
Signature of Stockholder: Date:
----------------------------------- ------------
Signature of Stockholder if held jointly: Date:
------------------- ------------
NOTE: THIS PROXY MUST BE SIGNED EXACTLY AS THE NAME APPEARS HEREON. WHEN SHARES
ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. IF THE SIGNER IS A
CORPORATION, PLEASE SIGN FULL CORPORATE NAME BY DULY AUTHORIZED OFFICER,
GIVING FULL TITLE AS SUCH. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP
NAME BY AUTHORIZED PERSON. PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY, USING THE ENCLOSED ENVELOPE.
